Lottery Winnings and Tax Planning: MA Man Wins Mega Millions

A young man from the Boston area recently came into a
substantially large amount of cash when he won the lottery.

With that much cash on hand, we must ask -- what is his
estate planning strategy?

Sandeep "Sunny" Singh of Hyannis won $30.5 million in
the Mega Millions lottery this week. The 22 year old has talked about what he
plans to do with the money. He chose to receive it outright in one lump sum of $23 million, reports The Boston Globe.

Of course, after taxes, his lump sum would be reduced to
$16.1 million, writes The Globe.

First off, we beg to ask the burning question on many
people's minds: Is there any way he can avoid tax on the lottery winnings?

The answer to that is unfortunately not very positive.
He doesn't have many options, if any, to avoid income tax on the lottery
winnings, if he chooses to take the winnings up front.

Moving on, can his family members avoid income tax on
the winnings that he gives them?

Let's first look at the "gift" he'll be making. The
current annual gift tax exemption amount is at $13,000. This means
that Singh can gift away up to $13,000 per year to each recipient, without
having to pay gift tax.

But from the looks of it, he plans to gift a lot more.

If these gifts are for medical expenses or tuition,
however, he won't have to pay gift tax on the amounts over $13,000.

Gift tax aside, another issue is that the recipients of
his gifts could be taxed on the amount they receive, as income.

He can get around this by placing the funds in an
irrevocable trust for the benefit of the family members, giving them a set
amount of regular income from the trust.

In fact, he could also make annual "gifts" to the family
member's trust, in an amount that falls within the annual gift tax exemption.
This way, he avoids paying gift tax on the amount.

Hopefully, he will look for a good estate planning or
tax planning attorney to help him out.

His family members have a huge windfall to look forward
too. But he has indicated that one person isn't entitled to his good fortune--
his ex-girlfriend, who dumped him weeks ago.

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